Immigrants and entrepreneurship: A road for talent or just the only road?

Abstract

The available evidence suggests that migrant entrepreneurs contribute to a country’s growth and innovation, but entrepreneurship might also be chosen by less talented migrants who have limited chances in the labor market. This paper develops a theoretical framework that features specific constraints migrants face to better understand the mechanisms at play in their occupational choices. I test the model predictions using data for Spain right after the migration boom occurred from the mid-1990s to the mid-2000s. I find that human capital losses upon arrival are largely responsible for the low propensities to self-employment of the three largest migrant groups (Romanians, Moroccans and Ecuadorians) observed in the data. Also, I find no evidence of negative sorting into self-employment. Yet, the relatively large self-employment rate of Moroccans, once human capital is properly accounted for, and their low entrepreneurial quality is consistent with this group of migrants being subject to penalties in the labor market associated to information problems that push them into self-employment.